An attempt to demystify the process of raising capital, democratize information and help entrepreneurs improve their businesses by avoiding the mistakes that I've already made... and occasionally include a personal post because Rich told me to.

Tuesday, May 09, 2006

Angel Tax Credits Would Be GREAT!!!

Jeff Cornwall writes and interesting and informative blog on entrepreneurship that I enjoy reading. I respect Mr. Cornwall's opinions, but his most recent posting claims that recently proposed legislation to support angel investing would be a bad thing because he writes

"If government wants to help entrepreneurship all the research shows that they should get less involved, not more involved."

I am all for minimally regulated markets and I am almost always for deregulation but not simply for the sake of deregulation... its got to make economic sense also! The two proposed bills would give angel's investors tax credits and create an Angel Investment Program that gives qualified angel groups $2M. This would great for entrepreneurs and I couldn't disagree with Mr. Cornwall any more strongly on this issue. The only possible downside would be a higher incidence of failure among startups due to more fundings taking place. However, the additional startups that would get funded are those that the investors are currently sitting on the fence with, not totally unqualified companies. Given that venture capital is an inexact science, I'm not convinced that these deals would be statistically worse than any others. Much like those companies that do get funded, some of these startups at the margin would fail, many would breakeven or have modest exists, and a small number would be breakout winners.

The topic of the rapidly growing pace of venture funds has been the subject of recent debate. I'm not sure where I stand on ventures funds growing from millions to billions, but providing more capital to be dispersed to startups in smaller chunks at the seed level through angel investors would allow more entrepreneurs to test their underlying hypothesis at a relatively low cost.